'Tis the season for smart holiday spending

AMES — Despite the financial challenges facing consumers — lingering inflation, growing unemployment and higher interest rates for federal student loans — holiday shoppers appear to be in fairly high spirits leading up to the 2024 holidays.

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According to TransUnion's 2024 Consumer Holiday Shopping Report, more than half of holiday shoppers (57%) plan to spend the same as last year; 38% plan to spend less this year.

The average American ran up their 2023 holiday spending debt to $1,550, the highest in LendingTree’s eight-year survey. According to a NerdWallet national survey, 28% of Americans continued to carry their 2023 holiday spending debt on their credit cards throughout 2024.

According to Carol Ehlers, a health and human sciences specialist with Iowa State University Extension and Outreach, “Holiday spending is a common way for people to land themselves in debt and financial stress. Some find themselves in trouble by rationalizing big spending and incurring debt during the holidays. This leads to paying for holiday spending well into the next year.”

Ehlers says practicing money-smart holiday spending gives consumers confidence to manage their money and resources throughout the season and into the new year.

Figure out how much you can afford to spend this holiday season without going into debt. Financial planners recommend spending less than 1.5% of your annual income on holiday expenses.

For example, if your gross income is $35,000, limit your total holiday spending to $525. If you haven’t saved that much, look for ways to cut back.

Be intentional and don’t get carried away by the holiday spirit. Research has shown that consumers tend to overspend for special occasions. Be intentional about your spending and don’t let your guard down when shopping for holiday gifts and events.

Make a list and check it twice. Prepare a detailed gift list with a set amount to spend, keeping track of what is spent.

Research indicates consumers reduce their food expense by 20% or more by using a shopping list and this may apply to other holiday spending categories as well.

Use cash, not credit. Most consumers use credit instead of cash, but research has shown that consumers spend more with a credit card than they do with cash, partially because they don’t get immediate feedback on their spending and credit card bills arrive several weeks after a purchase.

One way to manage cash spending is the envelope method. Make one envelope for each person and only put in what you plan to spend. If credit is necessary, charge only the amount that you can safely repay in a few months.

Limit your charges to one card with the lowest interest rate and fees. Keep all receipts.